Question

Which sentence best describes a regressive tax? A. Regressive taxes place a higher burden on people who earn less compared to wealthier tax payers. B. Regressive taxes place a higher burden on wealthy tax payers compared to people who earn less. C. Regressive taxes result in poor tax payers paying no taxes. D. Regressive taxes prevent tax rates from rising over time.

Answer 1

The correct answer is A.

A regressive tax is applied uniformly to all taxpayers. Therefore, every person pays exactly the same, but such payment means a higher burden for those taxpayers with a lower income. If you earn 100, paying 1 as tax doesn't mind a lot to you, but if you earned 10 it would mind much more.

The most important regressive tax is the value added tax (VAT), in which a certain percentage of the price paid for a product is charged on top as a tax. If you buy rice, the percentage charged as VAT is the same for all consumers, but that amount of money would mean more to a humble shop owner than to the US president, for example.